When Simple File Sharing is enabled, all remote users authenticate as a Guest.
Remote users may be denied access on a share because the default permissions don't contain the Everyone group which Guest maps too, which is required for remote users that are using the Guest account to access the files. (I'm presuming something happened in this area during a security upgrade).
If this is the cause of the problem, you can correct it by unsharing and then resharing the affected drives/folders. The permissions should reset and you should be able to connect again.
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The second option is to enable the Guest account on your XP machine. (Start, Settings, Control Panel, Administrative Tools, Computer Management, Local User and Groups, right click Guest and Enable).
Then (on your Win98 machine) go to Internet Options, Security under Local Intranet, User Authentication, and set it to Automatic Logon with Current Username and Password.
The problem with the above is lays your machine wide open for anyone else to access. Which is why it's disabled by default.
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The third option is to create a 'new' user on your XP machine using the same user name and password used on the Win98 machine. (You may also need to change the network login preferences in W98 from "Windows Login" to "Microsoft Client for Windows Login" located under "Properties..." when right-clicking on the Network Neighborhood icon.)
Then you'll need to create shares for drives and/or folders you want to access and assign. Your Win98 machine should now be able to see the XP shares.